This article was published on Dec. 27, 2024, at 7:37 a.m. on the CHOSUNBIZ Money Move (MM) site.
The stock price of mobile game company Action Square is skyrocketing due to the impact of former WeMade Vice Chairman Jang Hyun-guk, known as the "father of WEMIX." On the 26th, Action Square closed at 2,990 won, a 30% increase (690 won) from the previous trading day. This rise is attributed to the news that Vice Chairman Jang completed his paid-in capital increase. The stock price has been on an upward trend since Vice Chairman Jang's arrival. Compared to the closing price of 1,189 won on the 11th, just before news of his participation in the capital increase, it has risen by 151.47%. Vice Chairman Jang was allocated new shares at 903 won per share, and the closing price on the 26th was 2,990 won, yielding more than three times the evaluation profit. Due to the sudden surge in stock price, trading was suspended on the 27th.
Vice Chairman Jang is in a position to become the largest shareholder of Action Square. Thanks to the financial support from Vice Chairman Jang and external investors, Action Square has emerged from its financial difficulties. The company has been concerned about capital erosion due to the prolonged lack of success with new titles, but it has raised 25 billion won through a paid-in capital increase and convertible bond issuance.
Now, only one thing remains: Vice Chairman Jang must deliver results at Action Square. Although he has worked in the gaming industry for a long time, he is not actually an expert in game development. Vice Chairman Jang graduated from Seoul National University's business administration program and joined Nexon at the recommendation of Kim Jung-ju, the founder of Nexon, where he worked as a project manager (PM). At WeMade, he gained attention for developing the virtual asset WEMIX rather than his main duties. Shareholders of Action Square also seem to be hoping for another virtual asset success. The problem is that Vice Chairman Jang is embroiled in legal risks. It remains uncertain whether he can profit from virtual assets again, given the oversight from the Financial Supervisory Service and the prosecution.
According to the financial investment industry on the 30th, Action Square announced that Vice Chairman Jang, who was appointed as co-CEO on the 20th, acquired 5,537,099 shares of Action Square for 5 billion won through a third-party allocation method of paid-in capital increase and completed the payment. In addition to the shares acquired through the paid-in capital increase, Vice Chairman Jang purchased 233,355 shares on the market for 2,139 won per share on the same day. Combined, the number of shares acquired by Vice Chairman Jang totals 577,454 shares, gaining a stake of 10.04% and making him the second-largest shareholder.
Action Square plans to issue the 4th series convertible bonds (CB) in January. The company intends to raise 20 billion won from ST45 New Technology Investment Cooperative, the issuing entity. The ST45 New Technology Investment Cooperative consists of 20 investors, with the largest shareholder being Jemopia, and the operational manager being the private equity firm Pectus Company. Pectus Company previously acquired shares of WeMade from former CEO Park Kwan-ho. It is speculated that this is related to acquaintances of Vice Chairman Jang. Adding the 5 billion won of paid-in capital contributed by Vice Chairman Jang means that Action Square will secure a total of 25 billion won, which is five times its sales figure (around 5 billion won).
Having incurred losses since 2015, Action Square is expected to invest its newly secured funds into new blockchain ventures led by Vice Chairman Jang. Action Square, which has been on a streak of losses, aims to overcome the crisis with the addition of Vice Chairman Jang and the introduction of new business lines. As of the third quarter of this year, Action Square's capital erosion rate stands at 17%. While he was CEO of WeMade, Vice Chairman Jang created the virtual asset "WEMIX" and actively pursued Play-to-Earn (P2E) games linking it to gaming.
WeMade achieved some success with its blockchain-based game "Mir 4" in 2021. Mir 4 is a P2E game that allows players to earn money while playing. Within Mir 4, players could exchange certain in-game items for the virtual asset WEMIX. WEMIX reached its peak price of around 32,000 won in 2021, and WeMade's stock price soared to 237,000 won on November 19, 2021. The current stock price of WeMade remains at around 30,000 won, which is one-eighth of that peak.
However, this time Vice Chairman Jang faces a legal risk as an obstacle. He is currently on trial for allegedly manipulating the distribution of WEMIX, the virtual asset created by WeMade, as well as the market prices and stock prices of WeMade. Vice Chairman Jang is accused of making investors continue purchasing WEMIX coins by announcing during a press conference in 2022 that he would halt the liquidation of WEMIX coins.
A high-ranking official in the gaming industry remarked, "I was surprised that Vice Chairman Jang attempted a return (despite being on trial)," and added, "There are mixed feelings of expectations and concerns in the gaming industry."
This official pointed out that even if Vice Chairman Jang attempts to develop virtual assets at Action Square, it may be awkward for cryptocurrency exchanges to list that coin. During the 21st National Assembly, independent lawmaker Kim Nam-kuk faced "coin lobbying allegations" for holding a substantial amount of virtual assets, raising suspicions that WeMade and WEMIX were involved. Given the many rumors surrounding Vice Chairman Jang, it is analyzed that exchanges like Dunamu may find it difficult to act proactively. There is also a possibility of intervention from the Financial Supervisory Service.
The existing convertible bonds also pose a burden. If Action Square's stock price surges, there is a risk that previously issued convertible bonds may be converted into stocks, diluting the value of the stock. If all of the 4th series CB are converted, the number of newly issued shares would be 19,841,269, accounting for 38.1% of the total number of issued shares. The conversion price is 1,008 won, and if the current stock price (2,990 won) is maintained until the conversion request period, bondholders are likely to convert the CBs into shares for profit. The conversion request period for the 4th series CB will begin on January 8, 2026.
There are also the 2nd and 3rd series of CBs that Action Square previously issued. In the case of the 2nd series CB, the conversion price per share is 2,081 won, and the number of shares convertible is 360,402. The period for exercising the conversion has already arrived. For the 3rd series CB, the conversion price is 1,641 won, with 1,828,153 shares. The conversion exercise period for the 3rd series CB will begin on April 25 next year.
The 4th series CB is particularly notable for its exceptionally high interest rates. According to the announcement, the nominal interest rate is 0%, but the maturity interest rate is 8%. This means that if bondholders hold the bonds until maturity, Action Square will need to repay an amount equal to 146.9328% of the principal (29.4 billion won) on the maturity date, which is January 8, 2030. If the stock price of Action Square falls below the conversion price (1,008 won) in the future, it is highly likely that bondholders will choose to recover the principal instead of exercising their conversion rights.